Demat Account – Everything you need to know

Investors have several best investment options, one is trading in shares. With the change in every aspect of life, the stock markets too have undergone a significant change since the time of its beginning. When the Bombay Stock Exchange was founded in 1875, it was an open outcry floor trading exchange. This means traders would buy or sell stocks by orally shouting prices on an open floor. Today, it is vastly different. A Demat Account is required to hold the shares. It is an electronic way where stocks are bought and sold online. Similarly, earlier, shares were physical receipts. On buying shares, a certificate was provided.

Over the years, people thought stock market trading was not for them because of the paperwork involved in completing a transaction. Stock market settlements, wherein you receive shares if you buy or money if you sell them, were longer. In 1996, trading began on NSE for shares held in the Demat account form. It was the start of a new paperless stock market trading environment. If you purchase a share today, it gets credited to your account in two days. Now, shares get transferred to your account. Investors cannot trade in the stock market without a Demat account.

What is a Dematerialisation (Demat) Account?

Investing in equity shares in physical form involves a lengthy procedure, paperwork, and risk. To keep the entire process easy and smooth, a Demat account is required. While trading online, the account is used to hold shares and securities in a dematerialized/electronic form. Under dematerialization, your share certificates are converted from physical form to electronic form to increase their accessibility.

A Demat Account number is required to settle trades electronically. It allows you to buy shares and store them securely. It is similar to a bank account in which you hold deposits with the bank and the record of debit/credit balances are saved in a bank passbook. Similarly, when you purchase or sell shares, it will be credited or debited to/from your Account respectively. It can be used to hold various investments like equity shares, exchange-traded funds, mutual funds, bonds, and government securities. You can open a Demat Account without holding any shares and can keep a zero balance in your account.

Features of a Demat Account

The important features of a Demat account are as follows:

• Safety: It safely holds shares and debentures as chances of thefts, loss or damage are eliminated as securities are held in an electronic form.
• Costs: Lower transaction costs are involved.
• Accessibility: A Demat is easily accessible as an individual can buy/sell securities from a computer, cellphone, iPad and other smart devices anytime and anywhere.
• Speed: The process is much faster as compared to availing securities in the physical form as buying and selling take place online.
• Convenience: With a Demat account it is easy to hold shares. Additionally, it is much handy for an investor to track his investments through a single account.

Benefits of a Demat Account

No-Risk

Dealing with physical share certificates can give the risk of:

• Forgery – Using a Demat account to store shares electronically is safe as forging a copy of a paper is easy.
• Loss – Using a Demat account ensures that all your shares are stored in one place safely as losing or misplacing a paper is common.
• Damage of paper – As time passes, papers decay and inks erode. A Demat account holds the record of transactions digitally.

No Paperwork

When a Demat account is used to buy and sell shares, all the certificates are in electronic form, thus transactions are hassle-free and less inconvenient. When one trade shares or other financial instruments, there is no need to hand over certificates to the buyer or seller.

After opening an account, zero paperwork is involved.

No Cost involved

Trading in physical securities involves additional costs such as handling expenses, stamp duty as well as for safety. All these costs are eliminated when managing a Demat account.

No Time involved

Buying and selling shares through the Demat account is instant. Earlier, exchanging physical certificates used to take weeks or even months. This means transactions become smooth and inexpensive.

Facilities offered by a Demat Account

• Transfer of Shares

  A Demat Account transfer shareholdings of an investor. It can be done by using a Delivery Instruction Slip (DIS) to manage share trading. You can give all the important details in this slip for the smooth completion of a transaction.

• Loan Facility

  The securities held in Demat Account can give access to a variety of loans from the bank. You can pledge these securities as collateral to obtain a loan from the bank.

• Dematerialization & Rematerialization

  With a Demat Account, conversion of the securities into different forms becomes a simple task. You can provide necessary instructions to your depository participant (DP) for dematerialization i.e. to get the physical share certificates turned into electronic form. Conversely, you can get the electronic securities turned back to the physical form as per requirements.

• Multiple Access Options

  A Demat Account can be accessed using various media. You can manage investing, trading, monitoring, and other operations using the facility of the Internet on a computer, smartphone, or other handheld devices.

• Corporate Actions

  A Demat Account can help you avail of the benefits connected with owning securities. Whenever a company gives dividends, interest or refunds to its investors, all the account holders get access to these benefits automatically. Additionally, corporate actions linked to equity shares like stock split, right shares or bonus issue is updated in the shareholders’ Demat Accounts.

• Freezing Demat Accounts

  The account holders have the option to freeze their accounts for a particular term, as per the requirement. It is made to avoid any unpredicted debit/credit into the Account. To avail of the freezing option, the account holder requires to hold a specific quantity of securities in his/her account.

• Speed E-Facility

  The National Securities Depository Limited (NSDL) keeps increasing several facilities for the account holders. Instead of physical submission of the slip, the account holder may give instruction slips electronically to the depository participant. It is done to make the process faster and less inconvenient.

How to open a Demat Account?

To open a Demat Account the following easy steps need to be followed:

• The first step in the process is choosing a Depository Participant (DP).
• Thereafter, fill an account opening form and attach a passport-sized photograph along with photocopies of the documents stating proof of address and identity.
• The DP will provide you a copy of the rules and regulations, the terms of the agreement and the necessary charges that you need to pay.
• Meanwhile, an In-Person Verification, a representative of the DP would communicate you to verify the details provided in the account opening form.
• After processing the application, you will get an account number/ client ID from the DP. These details will be required to access the Account online.
• When you become an account holder, you would be required to pay an annual maintenance fee for the maintenance of your account. Additionally, you would be charged a transaction fee for conducting a buying/selling transactions via the Account. In case your shares are in physical form, the DP may charge you a separate fee for the dematerialization of the shares.
• An Account can be opened without having any shareholdings. Moreover, there’s no mandate to maintain a minimum balance.

Types of Demat Account

There are two kinds of Demat accounts—Repatriable Demat account and Non-repatriable Demat account.

Repatriable funds are deposited in a separate bank account known as the Non-Resident External Account (NRE account). Repatriable funds are those funds that can be transferred abroad. The investments made from these funds are maintained in a The Repatriable Demat account holds the investments made from repatriable funds. On the other hand, non-repatriable funds (funds which cannot be taken/transferred abroad) are deposited in a separate bank account known as the Non-Resident Ordinary Account (NRO account).

The Non-repatriable Demat account supports the investments made from non-repatriable funds. Money can simply be shifted from an NRE to an NRO account. But, once the transfer is made, the repatriability is lost and the money cannot be shifted back to the NRE account.

Conclusion

It can be concluded that the DEMAT Account has become a necessity for an investor, who wants to trade stocks online. DEMAT accounts remove the difficulties that investors have to face while trading with securities. It minimizes paperwork. It facilitates faster transactions and makes the trade of securities extremely convenient.

WealthBucket is a CA/CS Firm providing various services related to Mutual Funds like investing in Large Cap Mutual funds, Equity Funds, Debt Funds, etc.

You can contact us on +91 9999379929 or you can mail your queries on our mail contact@wealthbucket.in.

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